THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, July 29, 1996 TAG: 9607280003
SECTION: FRONT PAGE: A6 EDITION: FINAL
TYPE: Editorial
LENGTH: 59 lines
Spending for military procurement has shrunk dramatically in the aftermath of the Cold War. Defense contractors have felt a squeeze resulting in numerous downsizings, mergers and consolidations.
There's no debate about the need to maintain a robust weapons industry. But how the government achieves that and at what cost ought to the the subject of vigorous debate. Case in point, a program being described by critics in Congress as Payoffs for Layoffs.
Three years ago, according to a report in The Wall Street Journal, The Department of Defense approved the idea of government help for contractors undergoing costly mergers. Only companies whose consolidation would lead to economies of scale and therefore less costly weapons were supposed to be eligible.
Other industries forced to adapt as market conditions change do so without relying on government largess. But it was argued that defense contractors are different.
First, they are essential, unlike the average widget manufacturer whose rise or fall has no impact on national security. Second, defense contractors are so regulated in what they can charge that they have less ability to absorb or pass along unexpected costs.
Critics complain, however, that the mergers would have taken place anyway. That they often create stronger companies with larger profits. That the government actually winds up subsidizing layoffs and is rarely rewarded with promised savings. And that the gigantic industrial firms involved really don't need help to survive. They are adapting swimmingly, and the handouts are pure gravy.
The numbers involved make this more than an academic disagreement. Hughes Aircraft, a division of General Motors, wants the government to pick up $132 million of a $366 million restructuring cost. Martin Marietta wants $98 million for gobbling up a General Electric unit.
And that's just the beginning. Ten other companies, whiffing the ripe aroma of pork in the air, have now applied for handouts of their own. The management in place after a Lockheed Marietta merger, for example, has asked for $855 million.
When costs begin to enter billion dollar territory, it's time to take a fresh look. The original decision to institute this program appears to have been taken in haste and apparently without appreciation for the stakes involved. At the same time Congress proposes to cut back Aid to Families with Dependent Children, it ought to be questioning with equal vigor aid to dependent corporations.
Congress needs to revisit this issue. Before payouts are made, taxpayers need to be assured that there's a payback in prospect. Far more stringent guidelines are needed to make sure defense contractors who qualify are actually essential and imperiled.
The survival of a few makers of weapons really is a matter of national security. But many more are simply competing for business and if they can't keep up ought to be allowed to succumb to the harsh logic of the marketplace. This program raises the suspicion that capitalism has triumphed everywhere but in the quasi-socialist defense sector. Except in rare instances, that's got to change. by CNB